Dear Sallie

Dear Sallie:

Can you please explain how repayment of student loans work? Everybody in my circle has student loans, and has been paying them back to Nel Net or Sallie Mae or someplace else like that for about 5-7 years. The borrowed figure ranges from 50-70K, with about 4-5% interest. Most of us pay between $200-400 a month. So why are all of us still paying off the interest on these loans? Why has all of our principle balances increased? Is it like a credit card? I understand payments are divided between principle and interest, but why would my principle increase? People always tell me to throw all my extra money at my student loans, don't make minimum payments, and I think: Why would I flush my money away like that? I feel like I'd give 3K with one payment and my due balance wouldn't budge. I'm clueless with this.

When I graduated from St. Rose with a Master’s Degree in May 2006, I owed 54K in student loans at 4.9% interest, consolidated. So the total interest would roughly be about $3,000, right? Why, after paying $251.00 for 60 straight months, am I still paying off interest, and currently have an outstanding balance of 56K? It went up $2,000. Huh? Does this make sense to anyone? I just paid off a $25,000 car through financing at 5.9% in 5 years. So why am I scheduled to pay off 55K at a lower 4.9% interest over the course of 25 years? I have been paying student loan interest for 60months and the principle balance has gone up $2,000. That’s right, after paying back 12K, I actually owe more than when I started. What? And everyone I talk to, who is in my age group 28-32, and my circle, is in the same exact position.

You’re probably saying, “Consolidated and Confused, call your lender and complain.” I do that three times a year, every year, and I exit every conversation with Sallie Mae even more confused than when I began it. Those operators are taught to give you the run around, and answer all your queries by throwing a lot of sideways math at you that makes no sense, and just leaves you saying, “Uh, OK.” I don’t even know how long my payback period actually is. I think it’s 25 years. But I DO know that my scheduled payment is set to go up every few years, and by the end I’ll be paying back $450.00 a month. Man oh man this is one funky, impossible-to-understand repayment plan, especially when government loans are sold as being loans with such small interest rates, easy to repay.

Maybe I’m just an idiot when it comes to this kind of math, but the sheer numbers of it, at least this whole paying-off-the-interest part, is not jiving with me. In the same time that I am paying back 54K, which is now 56K at 4.9%, I am going to probably buy and pay off 5 cars worth 25K-30K at a higher interest rate. Of course the car payments are a bit higher: $330ish vs. $250ish, but my student loan payment is scheduled to climb all the way to $450ish by the end. Does this make sense to anybody? Can somebody make me understand why I’ve been paying interest since 2006, why my principle balance has climbed $2,000 after paying back $12,000, and why it will take me 25 years to pay back 55K at 4.9%, finishing with a payment of $450.00 a month?

I have started to accept that my student loan payment is like utilities or cable. It will always be there, and I will always mindlessly write a check, mail it off to that Bermuda Triangle called Sallie Mae. And every year when I call to question the math, some man or woman, ironically from Bermuda, will explain it to me in total gibberish, and I’ll say, “OK, that sounds about right,” when it sounds anything but. Then make another payment that makes no sense to me. God bless the government.

Sallie, can you help me understand this?

Sincerely,
Consolidated and Confused